You Still Have the Right to Resell Your Books and CDs—For Now

On Tuesday the Supreme Court ruled that it is legal to import and resell textbooks and other copyrighted works that have been purchased cheaply abroad. This presents a conundrum.

Supap Kirtsaeng, a student at Cornell who was originally from Thailand, realized that the exact same textbooks that were going for over a hundred dollars in the U.S. were available for peanuts back home. So, he asked his friends and family in Thailand to go to bookstores and buy the textbooks, ship them to him in the U.S., and he sold them on eBay for a profit. These were not pirate or knock-off goods; they were the real deal published by the Asian subsidiary of John Wiley & Sons and stamped “not for resale.”

Wiley sells books more cheaply in Thailand because it engages in market segmentation, a simple kind of price discrimination. In order to maximize profits, Wiley charges different prices to different consumers according to their willingness to pay. And what country or market you’re in serves as a proxy for what you’re willing to pay. This only works, though, if you can make sure that there is no arbitrage, and that’s why Wiley sued Kirtsaeng.

The publisher claimed that because the books were printed overseas, they were not subject to U.S. copyright law, which includes the “first sale” doctrine. The “first sale” doctrine says that once you purchase a book or other copyrighted work, you can dispose of it as you please. You still can’t make copies or make a derivative work—those would still be copyright infringements—but you are free to sell it, lend it, rent it, burn it or give it away. It’s your book.

Kirtsaeng lost at both the trial and appellate level, with each of those courts finding that the first sale doctrine did not apply to works printed overseas. The Supreme Court overturned them.

On the one hand, this is the right policy outcome. What’s yours is yours, and why should you be restricted from selling or otherwise disposing of something you own. Kirtsaeng had acquired the books legitimately from bookstores in Thailand and he’d never made any promises to Wiley. Why shouldn’t he be allowed to do whatever he wants with his property?

Moreover, imagine the Supreme Court had not ruled this way. The incentive would be for all publishing to move overseas, or at least to outsource their printing. By doing so, publishers could essentially get rid of the first sale doctrine and with it secondary markets for copyrighted works. And it wouldn’t be just books and music, but probably also electronics that include copyrighted software or other components. Goodbye to eBay, used bookstores, and Amazon’s “used & new” option.

On the other hand, the likely outcome of this decision is that Wiley and all other publishers will now raise prices in countries that now get cheaper prices. These tend to be developing countries, so essentially poorer students abroad will be suffering the consequences. Some will no longer be able to afford the books at all, even though the marginal cost of one more book to a publisher who has already made the investment for the American market is essentially zero. As a result, it would not be surprising if we see students in these countries substituting with piracy.

Essentially, the Kirtsaeng decision makes it practically impossible to price discriminate, a practice that tends to make all parties better off. It’s nevertheless the right decision because while there’s no right to price-discriminate, there is a right to do with your property as you like. What’s especially bedeviling is that the reason publishers can’t price-discriminate is because it’s practically impossible to contract.

Imagine that a bookstore doesn’t sell you a book simply for cash, but sold it to you for cash and a promise not to resell it. In that case, the first sale doctrine would rightly not apply, and you would no longer have a right to do with the book as you please. (Or you could, but then you’d have to pay the seller damages.)

The problem is that it is virtually impossible to enforce, or possibly even make, such contracts. (If you think otherwise, please explain why in the comments.) It’s greatly unsatisfying that an inability to contract is impeding what might be the preferred state of the world.

If enforceable contracts that could govern the use of books and other works after purchase were possible, what would we see? First, we would likely see poorer students in developing countries have access to lower-priced books. And second, we’d see some big changes to secondary markets. One possibility is that they would go away altogether, but at the same time prices for new books would also decrease. Another possibility is that we would still have a secondary market, but only for much more expensive versions of books sold without a no-resale promise.

It’s probably no surprise, then, that this is exactly what we are seeing develop in the ebook market. While the issue remains somewhat unsettled, the fact is that you don’t buy ebooks from Amazon or music singles from iTunes—you license them. And when it comes to licensed software at least, a recent Ninth Circuit Court of Appeals case found that the first sale doctrine does not apply (the Supreme Court declined to take up the case.)

The question now is: Is the kind of licensing you engage in when you “buy” a book or a song from Amazon or Apple a legitimate contract? I’ll get back to you on that.

Jerry Brito is a senior research fellow at the Mercatus Center at George Mason University, and director of its Technology Policy Program. He also serves as adjunct professor of law at GMU. His website is jerrybrito.com.

We see use restrictions like no resale in copyright all the time. Almost all commercial software has a no resale restriction on it from so-called shrink wrap contracts. Paternalists tend to lament these contracts because they are essentially contracts of adhesion and there is fear that people don’t read/understand that when they unwrap a new copy of Sim City (or agree to the EULA with a check box) they are agreeing to not resell the game. As a libertarian I’m very much OK with this; people should read their damn contracts or suffer the consequences.

Regarding textbooks, many school book stores have started to rent books to students rather than sell them outright — this seems to be a way to lighten the load in developing countries, especially if text book firms choose to rent only to those low income areas while selling out right (perhaps with EULAs) to high income areas. As a libertarian who is more of the deontological sort (rather than utilitarian) I’m really not sad about the difficulties of price discrimination under the new rule. I see no reason why a business should be entitled to use state coercion to make a particular business model work. Businesses are innovative, they’ll figure out a coercion-free way to make their strategies effective when they can’t rely on state coercion. Look at cable TV (solving the broadcast free-rider dilemma) or even DRM on e-books and music (unpleasant maybe but it still relies on consumer choice rather than state coercion — you don’t have to buy music with DRM).

smilerz

You leave out another alternative, and I think the most likely one. With this decision companies have a strong incentive to develop methods to diminish the value of a resold book. I can think of any number of possibilities, but one strong example is currently taking hold in the video game market.

Publishers of video gaming are including single use keys that provide extra content such as online gameplay, extra scenes, etc. you can still purchase a used game, but to get the extra content you have to also purchase the extra, digital only, content to gain the full experience.

You say, “the likely outcome of this decision is that Wiley and all other publishers will now raise prices in countries that now get cheaper prices,” but I think that depends on how frequently the publishers think new Kirtsaengs will pop up. If a massive market in used foreign textbooks emerges, the way there were entire stores devoted to used CDs in the 1990s and early 2000s, there might be enough money leaving the table to inspire a reaction. But that seems doubtful – the market’s just not that big. I predict publishers will just see it as the cost of doing business.